PIA: Insurance Regulatory Reform Will Take Years, More Than One Bill

As the year drew to a close and members of Congress started to think about adjournment, an influential senator introduced a bill to reform insurance regulation. The bill was intended as a starting point for discussion of various proposals circulating in the industry.

It called for an optional federal system, in which an insurer would be given a choice of being regulated under a state or a federal charter. If a federal charter were chosen, the insurer would then be exempt from state regulation and subject to federal standards.

The year was 1976, and the bill was introduced by former Sen. Edward Brooke, R-Mass.

Much has happened in insurance regulation over the intervening 27 years since Sen. Brookes proposal that adds impetus to reform of our existing regulatory system. But the underlying cause for reform remains the same, albeit more urgent: the increasing clashes and friction caused by the current state-federal system.

By enacting the McCarran-Ferguson Act in 1945, Congress permitted the states to continue their taxing and oversight of insurance. However, Congress did not give up its preemptive authority over insurance.

In the Financial Services Modernization Act of 1999, more commonly known as Gramm-Leach-Bliley, Congress restructured the financial services industry. Under it, insurance became one of three financial sectors. In taking this step, Congress never intended insurance regulation to be changed “only a little” and in only a handful of states.

There is no better evidence of this intent than when Congress included a provision in GLB that threatened to create a federal regulatory structurethe National Association of Registered Agents and Brokers, commonly known as NARABif states did not meet specific targets for reciprocity in licensing.

Under GLB, Congress once again decided to retain and expand the functional state-oversight structure for insurance that had been created under McCarran-Ferguson. It relied upon the National Association of Insurance Commissioners to achieve the legislations aims.

However, since 1945, there has been a series of enlarging federal encroachments on the regulation of all insurance by the states: the National Flood Insurance Program, the Federal Crop Insurance Corporation, the Terrorism Risk Insurance Act, and others.

The real and current system of insurance regulation consists of multiple federal venues, 55 state and territorial jurisdictions, and zone collaborations of NAIC oversight. Individually, they are expanding their oversight of the insurance sector and practices, creating compliance burdens and legal concerns for insurance producers that often conflict.

The National Association of Professional Insurance Agents believes that each of these insurance oversight venues is important and necessary. However, without more state and federal reforms, legal conflicts will continue, imposing an increasing and costly burden, as well as compliance conflicts.

In May 2000, the PIA National Board of Directors adopted a national policy. It embraced functional state oversight of insurance to force both federal and state jurisdictions into a more cohesive, logical and enforceable joint-system.

Reforms must encourage the creation of modest federal national insurance standards that are progressive and flexible. It must not re-impose regressive aspects of the current status quo.

That said, there are several points that PIAs national standards approach specifically does not embrace.

PIA does not embrace a federal-only system. In our view, to achieve a federal-only system, Congress would be required to repeal McCarran-Ferguson and void decades of specific, relatively consistent and detailed state common law that oversees how we practice insurance and protect the public.

Aside from being poor public policy, such a move would pose a significant constitutional problem for Congressnamely, federalizing the tort system. This would be necessary to avoid subjecting insurance to two legal systems simultaneously. A federal-only system is a big nonstarter.

PIA rejects a state-by-state system. A true state-by-state, dissimilar, noncoordinated system doesnt exist now. It will not work because the existing conflicts between the states and with the federal government would continue and escalate.

PIA does not embrace the federal optional charter approach. PIA agencies represent every kind of insurer in order to meet the portfolio needs of their clients who need the mix of carrier offerings.

Under a federal optional charter, PIA agencies would represent both federal and state-chartered carriers with federal and state-regulated products and state and federal oversight rules. This traps independent agencies and brokerage firms in the state-federal law and rules conflicts that already exist, and which we are trying to improve with these reforms.

The answer may be called national insurance standards. But enacting a coordinated system of national insurance standards cannot be accomplished with a one-venue, one-proposal approach.

There are many components to such a reform effort that must be articulated and then enacted by Congress. It must include complementary action by all the states and regulatory bodies. This will involve multiple bills, not just one, and it will take several years.

Yes, a lot of work and coordination.

Those who may be tempted to over-simplify insurance regulatory reform and treat it as if it can be boiled down to one bill are mistaken. There is no single silver bullet that at one time, and in one place, gets us all that we need. Those who propose that we go in such a direction are heading for a train wreck.

For instance, more reform is needed for nonresident insurance producer laws and nationwide rate and form changes. But to do so would require each jurisdiction to make changes in its own laws and then coordinate a federal standards mandate to keep the details on track.

Many insurance professionals believe that adoption alone of the NAIC Producer Licensing Model Act (PMLA) is enough to achieve the scope of reform needed. It is not.

PLMA only addresses the licensing process, and only a portion of it at that. PLMA only partly feeds into the broader scope of insurance regulatory oversight of insurance producers, which is the entire focus of PIAs reform efforts. These additional producer licensing reforms cant be complete without federal changes as well.

The entire reform effort will require a tenacious focus to keep our agenda on track. The approach we advocate demands that the industry work cooperatively with both federal and state lawmakers and regulators simultaneously.

Lets not forget that previous actions by Congress were shaped and modified by the collaborative efforts of state regulators and insurance professionals working with Congress to avoid a czar-type overseer of insurance regulation.

Our approach is conservative, not radical. We have a series of suggested reform starting points that take their cues from the fine work already being done at the state, national and federal levels.

However, it is a global approach that requires one to think of and see change differently. Part of that difference is to repeat the same message of reform to the state, federal and industry audiences. One story of reform before state audiences and a different story before federal policymakers will not get the job done.

PIA believes this type of influential, collaborative and well-informed effort is possible and necessary. It has a proven track record of success.

This approach compliments and is not in conflict with the NAICs Alliance for Sound State Uniform Regulatory Efficiency (ASSURE) initiative. ASSURE, an initiative by the NAIC, is a nonprofit coalition made up of consumers, legislators, industry and business leaders who believe that state governments are better equipped to regulate the insurance industry.

It is an effort dedicated to achieving the best reform results, not talking a big game to avoid change. It demands those who participate in it to really know insurance and its related business practices.

Our ultimate success will not depend upon a lobbying “grip-and-grin” brigade. Expertise, not bragging, committed to securing end results is what is necessary. The stakes are too high. This is about keeping our business in business, keeping it competitive and able to meet our clients needs and our earnings goals.

Patricia A. Borowski is senior vice president of Professional Insurance Agents National based in Alexandria, Va. She can be contacted at patbo@pianet.org.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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PIA: Insurance Regulatory Reform Will Take Years, More Than One Bill

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